What to Know About Property Taxes on Investment Property

Property taxes are part of the cost of owning real estate, but they’re often an afterthought for those who are new to real estate investing. It’s important to understand how property taxes work and the potential impacts they can have on your investments.

Who Pays Property Taxes?

In most cases, the property owner is responsible for paying the property taxes. If you are renting your investment property to a tenant, you may include a clause in the lease that requires them to pay taxes to help offset the cost to you.

How Are Property Taxes Calculated?

Property taxes are calculated based on the current assessed value of the property. Assessed value is typically determined by a local government body and can vary from year to year, thus affecting the amount of taxes owed.

When buying property, you must factor in property taxes when calculating the total cost. The amount owed each year can be affected by local economic, social, or political changes, which can in turn affect the rental income you receive.

Are There Tax Breaks for Investment Property?

Income-producing property, such as rental real estate, may qualify for certain deductions on your tax return. These may include mortgage interests, repair and maintenance costs, depreciation, and other expenses.

Property taxes can also be used to reduce your federal income tax liability, as long as proper documentation is maintained and provided to the IRS and local tax authority.

How Do I Pay Property Taxes?

Depending on the jurisdiction, property taxes may be due in one lump sum payment, or in installments throughout the year. If you are paying your property taxes in installments, be sure to make all payments on time to avoid penalties or interest charges.

Conclusion

Property taxes are an important factor to consider when investing in rental real estate. The amount owed per year can change from year to year, so it’s important to stay informed on local assessment changes in addition to any deductions you may be entitled to when filing taxes. With the proper planning and knowledge, investors can effectively manage their property taxes.